Collecting GST/HST as a Small Business in Canada

Whether you are new to running a business or have years of experience, it is important to stay current and informed on tax regulations. One such consideration is the collection of GST/HST. Especially when businesses have few employees, or fall into a niche category, it can be confusing. Instead of risking penalties or tax issues, it is best to stay ahead of the curve by getting all the information you can. 

What Are GST and HST?

The first step to learning how to responsibly collect taxes from customers is to gain a full understanding of what the taxes actually are. It’s helpful to know that taxable amounts are charged according to the location of the customer, not the service provider. So, if your business is in Ontario, but your customer is in British Columbia, you charge according to British Colombia’s methods. 

GST

Short for Goods and Services Tax, GST is a federal tax that applies to the price associated with, as the name suggests, services and goods. When the customer pays, the businesses add the GST onto the amount so the customer pays both. From there the company passes this amount along to the government. 

HST

An abbreviation of Harmonized Sales Tax, this refers to situations where provincial sales tax and GST are combined. It is a tax due and payable at the point of sale, after which the business remits it to the government. 

PST

A shortened form of Provincial Sales Tax, this is an amount that each province collects according to their own regulations. It can also go under the name of Retail Sales Tax (RST). In the province of Quebec, this is referred to as QST. In each case, the amount is tacked on to the customer’s bill at the point of sale. While the percentages vary by province, the remittance is fairly consistent in that the business pays it forward to the governing body. 

Do You Have to Collect GST and HST?

The regulations around the collection and remittance of taxes are fairly nuanced.  There are several considerations including: 

• Small suppliers are not obligated to GST and HST arrangements. This means that, if your gross revenue per quarter, consistent across the last four quarters, is less than $30,000, you are exempt. Additionally, you must sale or lease taxable products under Canadian regulations. If you make above $30,000 per quarter and sell taxable goods, you are obligated to GST and HST remittance. Note that the revenue is calculated according to when the amount is invoiced as opposed to when the owing funds are received by your business. 
• Exceptions exist under tax regulations. For instance, if you retail supplies that are exempt from tax obligations, you don’t have to register for the GST/HST program. Some examples of these exemptions include real property, medical, dental, and healthcare, childcare, and education.

What If You Have More Than One Business? 

If you run several businesses that require GST/HST remittance, there are options. Should the businesses be associated with one another (such as multiple franchises), you can approach placing them under the umbrella of the same GST account. This can simplify financial arrangements when doing your taxes. Alternatively, you can opt for a unique GST number for each different business you operate. This is useful for situations where your businesses, and their associated assets, are separately held.  

Check out how income taxes differ from a contractor and a payroll employee. 

What If You Run a Charity? 

In the situation where you run a non-profit organization or provide a public service such as education, is still obligated to register. Bear in mind that, for these types of organizations, there are detailed regulations surrounding GST and HST. Typically, this entails paying only 60% of the standard amount. However, there are situations where the full amounts are owing on your GST/HST collections.  

What Items Do You Collect GST and HST? 

Learning when to collect these taxable amounts is essential to responsible business practices. Transactions fall into one of three categories:

Exemptions

These transactions are when you neither charge nor collect these taxes at the point of sale. For instance, if you offer a childcare service or another exempt arrangement as detailed above, you are not obligated to either GST or HST on said transaction.

Zero-Rated

When you are able to claim an input tax credit though not obligated to remit, collect, or charge the GST/HST amount, this is referred to as a zero-rated transaction. For instance, if you are retailing food products at an independent location, you are selling zero-rated products. This means you neither charge customers GST/HST nor do you remit it to the government. 

Taxable

Lastly, this refers to when you do collect and remit the GST/HST amount in proportion to the purchase amount. This leaves you able to claim input tax credits pursuant to the amount you remitted to the government. It’s meant to apply to the price associated with the production of said services and goods. 

Registering For GST and HST

In order to avoid pitfalls and unpleasantries, it is essential to file for a GST registration and begin charging in a timely manner. This involves knowing the proper registration procedure, with details such as:

• When to register: The first step to prudent tax collection is understanding when you’re obligated to register and begin charging. In short, you must register when you no longer qualify as a small supplier. You are responsible to register at month’s end (29 days after) you are no longer exempt. The effective date on your registered account must not be later than the first day of the next month. At this point, you must begin charging GST/HST. 
• Learning the process: If you don’t have one already, the first thing you need to do is get a business number. The process is fairly straightforward and can be completed online. So long as you have all of your financial information close at hand, you can quickly access the site and complete the procedure.  
• Voluntary registration: For situations where the company does not yet qualify for the GST arrangements under the government of Canada, there is still the option of voluntary registration. This enables businesses who are growing quickly to have access to the program which can be used when the criteria are met. Bear in mind that, if you only sell supplies that are exempt from the tax, you probably cannot register. 

Check out this guide on how to set-up payroll for your small business. 

When do You Remit You GST/HST Collected? 

The frequency of your payments to the government pursuant to your tax collections is directly related to the period of your filing. Essentially, this means that whenever you do your normal taxes, you will also be expected to remit these amounts. There are different categories which include: 

Annually

This applies to businesses that have a calendar year-end fiscal year. This means that your reporting period comes to a close on December 31. It also provides for a payment deadline on April 30. Note that the actual filing deadline for these arrangements is June 15. This is the most common arrangement for businesses, particularly those that are smaller. Whether you’re a sole proprietorship or have few employees, this is the most likely scenario. 

Quarterly

This arrangement entails you paying the amount owing a full month subsequent the deadline for reporting. The filing and payment deadlines fall on the same day. Considering a calendar-focused fiscal year, your reporting period would end on March 31. This means that your remittance (and filing) are due on the 30th or April. 

Monthly

For those filing monthly, the end of your reporting period falls a month before your payment and filing deadline. For instance, if the end of your reporting is on September 30, your payment deadline will be the 31st of the following month. Arrangements are according to the calendar, as opposed to the days which pass in between. This applies to both payment and filing. Typically, this is for larger businesses with higher gross revenue in each period. As such, it enables accounting to simplify in terms of tax arrangements. 

Check out how to file your business tax return. 

Some Final Thoughts

By ensuring that your business adheres to all tax regulations, you prevent potential penalties and open yourself up to tax credits. Whether you are approaching a voluntary arrangement or are obligated to file, understanding how GST applies to your company is essential. While all businesses are unique, they all make up the Canadian economy; and, therefore, have a great deal in common. GST and HST are the shared responsibility of those who run businesses. When managed prudently, you contribute both to your company’s wellbeing and that of the economy as a whole.